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Accounting Principles presentation for BAT4M1.
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ACCOUNTING PRINCIPLES+ why you should care about them
Alan, Bowen, James and Linda present:
For Ms. Adridge’sBAT4M1
Accounting Class
[OVERVIEW]01
02
03
04
05
What is the conceptual framework of accounting?
Objectives, Qualitative characteristics, Elements & Criteria
Assumptions, Principles and ConstraintsThe foundation of accounting standards
International Financial Reporting Standards
It’s impact on accounting
Summary & Conclusion
End of chapter quiz
HOW DID ACCOUNTING STANDARDS ORIGINATE?
”It’s just a tradition that has been passed down
from century to century.
“
”It’s just a tradition that has been passed down
from century to century.
“
”A bunch of men in suits make arbitrary
decisions based on what they think is best.
“
”A bunch of men in suits make arbitrary
decisions based on what they think is best.
“
ACCOUNTING STANDARDS ARE
1. Constantly evolving
2. Based on the conceptual
framework of accounting
THE CONCEPTUAL FRAMEWORK
A set of basic rules and definitions that all
standard setters agree on.
THE CONCEPTUAL FRAMEWORK
1. The objective of financial accounting
2. Characteristics of effective financial statements
3. Elements of financial accounting
4. Measurement and recognition criteria
THE BREAKDOWN
Objective of financial accounting
“ Financial reports must communicate information that is useful to investors, creditors, and other users for resource
allocation decisions / management evaluation.”
THE BREAKDOWN
Objective of financial accounting
1. Economic resources, obligations and equity
2. Changes in the above
3. Economic performance
THE BREAKDOWN
Characteristics of accounting
1. Understandability2. Relevance3. Reliability4. Comparability
THE BREAKDOWN
Elements of accountingBasic terminology – what is an asset?
THE BREAKDOWN
Recognition and measurement criteria
Assumptions, principles and constraints
ADVANTAGES
1. Expedites decision making process
2. Ensures consistency of standards
ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
ASSUMPTIONS
Create a foundation for the accounting process to
run on.Going Concern AssumptionMonetary Unit Assumption
Economic Entity AssumptionTime Period Assumption
PRINCIPLES
Derived from the assumptions; they
explain how economic events should be
handled.Revenue Recognition / Matching
PrincipleCost Principle
Full Disclosure Principle
PRINCIPLES
Revenue Recognition Principle
1. Evidence of an arrangement2. Delivery has occurred
3. Seller’s price can be determined4. Collection is reasonably certain
PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
PRINCIPLES
Revenue Recognition Principle
1. At point of sale2. During production
3. Upon completion of production4. When cash is collected
PRINCIPLES
Matching Principle“Let the expense follow the revenue”
Basis for accumulation.
PRINCIPLES
Full Disclosure Principle1. Give supplementary detail
2. Explain unrecorded transactions3. Supply new information
PRINCIPLES
Cost Principle1. Trading / Available for sale securities
2. Merchandise inventory3. Long lived assets
PRINCIPLES
International Accounting Principles
IFRS (International Financial Reporting Standards)
CONSTRAINTS
Are licenses to bend accounting principles
1. Cost – Benefit Constraint2. Materiality Constraint
IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
2. CHARACTERISTICS
IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
2. CHARACTERISTICS
3. TERMINOLOGY
IN SUMMARY
The Conceptual Framework
1. OBJECTIVE
2. CHARACTERISTICS
3. TERMINOLOGY
4. CRITERIA
IN SUMMARY
The Conceptual Framework
1. CRITERIA
2. ASSUMPTIONS
3. PRINCIPLES
4. CONSTRAINTS
IN SUMMARY
The Conceptual Framework
Safe accounting practices
THANK YOU.
